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Is the era of value investing over? · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back to the Financial Exchange.
1:12
Speaker 3: We have markets in mixed.
1:13
Speaker 2: Territory here with the Dow up about half percent and
1:16
Speaker 2: as back down a.
1:17
Speaker 3: Third and the S ANDP somewhere in between. There.
1:21
Speaker 2: Breaking news over the course of the last twenty four
1:24
Speaker 2: hours was in Vidia's announced investment in chat GPT owner
1:30
Speaker 2: open Ai. They're making one hundred billion dollar up to
1:33
Speaker 2: one hundred billion dollar investment in that company, and in
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Speaker 2: Vidia shareholders not taking it extraordinarily well this morning, with
1:41
Speaker 2: the stock down about two percent today in early trading.
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Speaker 2: The insinuation that concerned Mark and I when we were
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Speaker 2: talking about it during the last segment, being that, hey,
1:53
Speaker 2: if you're the largest supplier of semiconductors in the world,
1:56
Speaker 2: then you have to go and inject one of your
1:59
Speaker 2: biggest buyer with cash. It might not be a great
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Speaker 2: sign for the state of the demand for these semiconductors,
2:05
Speaker 2: but in their own customer, yeah, they're becoming their own customer.
2:09
Speaker 2: It becomes a bit of circular reference warning there if
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Speaker 2: you're taking a look at it all. But nonetheless, that's
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Speaker 2: where we stand in the semiconductor space. At the same time,
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Speaker 2: obviously China continuing to reject the Nvidia made chips by
2:24
Speaker 2: and large and working to develop their own homegrown industry
2:27
Speaker 2: when it comes to semiconductor design and development. I did
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Speaker 2: want to turn over now though, to Mark the story
2:35
Speaker 2: of Argentina. Argentina is well. Investors in Argentina are concerned
2:41
Speaker 2: about default once again, this would not be anything new
2:44
Speaker 2: for Argentina. In fact, they haven't defaulted in five years,
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Speaker 2: and some might argue that that means they're overdue.
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Speaker 3: But a lot has.
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Speaker 2: Changed in Argentina over the course the last few years,
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Speaker 2: election wise, just economic thinking wise. So I guess bring
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Speaker 2: us in Mark on the state of things with Argentinian
3:04
Speaker 2: public finances if you would. I know you were doing
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Speaker 2: more reading about this than I was, So give us
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Speaker 2: a state of play right now.
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Speaker 3: When it comes to Argentina, Well, like you.
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Speaker 4: Said, they're kind of a perennial basket case, and the
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Speaker 4: reasons for that are not really well, the proximate reasons
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Speaker 4: are very easy to see. They have a shortage of
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Speaker 4: foreign currency reserves dollars with which to repay debt. They're
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Speaker 4: short of money.
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Speaker 3: So have been perennially for thirty some odd years.
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Speaker 4: They were a very rich country one hundred years ago,
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Speaker 4: top ten in terms of per capita GDP in the world,
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Speaker 4: richer than France on a per capita basis, Italy, Germany.
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Speaker 4: This is an astonishing fact. If you would ask somebody
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Speaker 4: in nineteen ten which country will dominate the twentieth century,
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Speaker 4: Argentina or the United States, the answer wouldn't have been straightforward,
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Speaker 4: believe it or not. So what's happened to them? The
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Speaker 4: long term answer is probably institutions, better institutions, rule of law,
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Speaker 4: welcoming foreign talent, free trade, free markets, generally independent monetary policy,
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Speaker 4: at least since the nineteen fifties. For the most part,
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Speaker 4: Argentina has a few of those, but has not had
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Speaker 4: them consistently. They broke from Spain and like the early
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Speaker 4: part of the nineteenth century eighteenth, fifteen, eighteen twenty, something
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Speaker 4: like that, and they never quite got their institutional act together.
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Speaker 4: That's put them at a disadvantage relative to the United States,
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Speaker 4: is probably the easiest way to put it. That doesn't
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Speaker 4: really help explain the buying bind they're in right now
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Speaker 4: in terms of the immediate cause, which is a shortage
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Speaker 4: of foreign currency reserves, which is in part due to
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Speaker 4: recent bad harvests. That's agriculture is a big export for them,
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Speaker 4: but also due to their need to defend the paso.
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Speaker 4: Their currency is linked to the dollar. It trades within
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Speaker 4: a band, and when it goes below, when it takes
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Speaker 4: too many pesos to buy a dollar cent, bank steps
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Speaker 4: in using foreign currency reserves, which they're increasingly short of,
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Speaker 4: to shore up the paeso. This is crucial to keeping
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Speaker 4: inflation down. So your currency goes down, the prices of
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Speaker 4: things that you buy from abroad goes up. That pushes
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Speaker 4: up your inflation, which feeds the vicious cycles. So the
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Speaker 4: US has stepped in, as China has stepped in, by
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Speaker 4: the way, we're competing with the Chinese on this, as
5:20
Speaker 4: we talked about in the last hour, US has stepped
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Speaker 4: in to promise to do sort of whatever it takes,
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Speaker 4: as Bissent said yesterday or whenever it was the day before,
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Speaker 4: to help Argentina meet its obligations. The idea that it's
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Speaker 4: a systemic risk is preposterous. By the way, Argentina, as
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Speaker 4: you said, defaults like every several years on average this
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Speaker 4: century and ten times in the past century.
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Speaker 2: Systemic risk would imply that there are a bunch of
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Speaker 2: institutions globally who are relying on the Argentinian debt to
5:49
Speaker 2: continue to operate.
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Speaker 3: And that's probably not the key.
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Speaker 4: Absolutely not. No, No expert mic or anyone who's remotely
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Speaker 4: familiar with this that I could find and is respected
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Speaker 4: as said anything of the kind that's preposterous.
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Speaker 2: So instead taking from so Jai, Miley took office at
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Speaker 2: the end of twenty twenty three and Chang came in
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Speaker 2: with the idea the chainsaw guy crazy had a hair
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Speaker 2: chainsaw came in with the idea of significant reform, and
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Speaker 2: he did. I mean, he dramatically cut social programs in
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Speaker 2: the country, really implemented austerity, which I think many mainstream
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Speaker 2: economists believe was necessary.
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Speaker 3: Cut government.
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Speaker 4: No, they warned about his cuts. He's libertarian, so I
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Speaker 4: love him, but they warned about austerity and so forth.
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Speaker 4: But it did get inflation down from one hundred and
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Speaker 4: forty to about forty percent annual.
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Speaker 2: And I guess that is that in part stemming the
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Speaker 2: problem is, Hey, you got inflation down, but you had
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Speaker 2: to use dollar.
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Speaker 4: Problems is to pay so link to the dollar. He's
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Speaker 4: gotta let it float if they stop defend. Now that's
6:47
Speaker 4: going to import some inflation, but you can fight that
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Speaker 4: with higher interest rate, which causes more economic pain, which
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Speaker 4: will cause more elections. They lost a big one in
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Speaker 4: a very important Buenos Aires apparently, which is a bell
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Speaker 4: weather of I don't know anything about Argentine politics, but
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Speaker 4: or Argentinian whatever it's called. I don't even know what
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Speaker 4: it's called, somewhat of a bell weather that freaked out markets, like,
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Speaker 4: oh boy, we're going back to left wing populism known
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Speaker 4: as paranism there because the guy perone a vita parans
7:16
Speaker 4: I guess husband, if you're like, if you want the
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Speaker 4: pop culture angle on this, her husband was the military
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Speaker 4: dictator who took over the government I guess in the
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Speaker 4: nineteen forties or something like that. So his political descendants
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Speaker 4: are called Paranis. They get back in power, it's going
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Speaker 4: to be big spending again, and we're back to the
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Speaker 4: old cycle.
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Speaker 2: So what can the United States actually practically do here
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Speaker 2: to counter Argentina's failure and how much of it is
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Speaker 2: genuinely we just discussed that. We don't really think that
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Speaker 2: it has much to do with systemic risk. But is
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Speaker 2: there an argument China?
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Speaker 4: Yeah, there's a geopolitical argument, and I'm not qualified to
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Speaker 4: make it to counter China's influence in the hemisphere. Yeah,
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Speaker 4: if they're going to extend. When they say swap lines,
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Speaker 4: they mean you can borrow cheap to shore up your currency.
8:02
Speaker 4: Is the simplest way to think about orbarro to get
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Speaker 4: more of their currency cheaply, which you can use in
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Speaker 4: turn to prop up your currency. The problem is that
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Speaker 4: the peso, the experts I have seen are unanimous and
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Speaker 4: that the peso has to be allowed to depreciate further.
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Speaker 4: That's going to mean importing some inflation. You can check that,
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Speaker 4: but it causes economic pain. But it absolutely has to
8:23
Speaker 4: happen if we get mired in this mic. We don't
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Speaker 4: have unlimited exchange stabilization funds with which to help the Argentinians,
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Speaker 4: like we're going to start to the irony is Bascent
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Speaker 4: was the guy who in nineteen ninety two ran the
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Speaker 4: desk of George Soros that shorted the UK pound and
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Speaker 4: got them kicked out of the what was known at
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Speaker 4: that time as the erm the European Exchange Rate Mechanism,
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Speaker 4: and Biscent is now on the other side of this,
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Speaker 4: so he knows darn well that he's fighting world capital
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Speaker 4: tides here that it's probably feudle to push against.
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Speaker 2: The financial situation in Argentina is just so stunningly bad.
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Speaker 2: It's almost difficult for Americans to comprehend it, right, I mean,
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Speaker 2: when we're talking about inflation in Argentina, their recent peak
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Speaker 2: inflation rate was two hundred and eighty nine percent annual
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Speaker 2: back in April of twenty twenty four. How do you even, like,
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Speaker 2: just thinking about anything that you buy a lot of,
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Speaker 2: it's difficult to comprehend what two hundred eighty nine percent inflation?
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Speaker 3: Heck, it's even.
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Speaker 2: Difficult, like the The win for Argentina recently has been
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Speaker 2: that they got annual inflation rates down to thirty four
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Speaker 2: percent in August of this year. Right, even that, I
9:30
Speaker 2: don't I don't think American can really accurately comprehend. I
9:34
Speaker 2: guess that's a little bit easier than two hundred eighty
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Speaker 2: nine percent. Like, okay, my two hundred dollars worth of
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Speaker 2: groceries is going to to seventy I guess in thirty
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Speaker 2: four percent annual inflation, that's even tough to comprehend.
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Speaker 4: But it has happened here to the Confederate States of
9:50
Speaker 4: America between eighteen sixty one and sixty five they had
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Speaker 4: like four or five thousand percent inflation. Price is doubled
9:56
Speaker 4: in the North. Yeah, right, so there have been some
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Speaker 4: power and during the during the Revolutionary War, there were
10:01
Speaker 4: similar and there was similar inflation. We printed money to
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Speaker 4: finance the spending. So it has happened here before, but
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Speaker 4: it wasn't It wasn't the USA, it was the CSA,
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Speaker 4: and it was brief.
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Speaker 2: So thank god, we will see what the involvement of
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Speaker 2: the United States looks like. You know, it seems to
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Speaker 2: run pretty contradictory to other goals of the administration, which
10:20
Speaker 2: is pulling back from you know, internationals.
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Speaker 4: Okay, what's our interest exactly here? Other than that we
10:26
Speaker 4: like Milley. Look, the only China excuse.
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Speaker 2: Me, I think the only one that I can come
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Speaker 2: up with would be the counter The only legitimate one
10:34
Speaker 2: that I could come up with would be. Yeah, the
10:36
Speaker 2: threat of more Chinese interest in Argentina, their ability to
10:40
Speaker 2: conduct trade on a much more global scale with Latin
10:43
Speaker 2: American countries could be perceived and I think would be
10:47
Speaker 2: perceived as a threat.
10:47
Speaker 4: Well, yeah, if you exchange them, if you afford them
10:51
Speaker 4: favorable borrowing terms, you can get the Chinese currency cheaper
10:55
Speaker 4: than you can get the dollar, use the Chinese currency
10:57
Speaker 4: to shore up your currency. That for others, I suppose
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Speaker 4: their goal, and I think it is the goal of
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Speaker 4: the Chinese Communist Party to have the yuan or whatever
11:05
Speaker 4: it's called replace the US dollar, so it would advance
11:08
Speaker 4: that objective. So I guess there is a geopolitical or
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Speaker 4: national security angle here. But again, are we don't have
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Speaker 4: a reservoir, an unlimited reservoir of stabilization funds with which
11:18
Speaker 4: to prop up the PAESO.
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Speaker 2: Agreed, Let's take a quick break when we come back.
11:24
Speaker 2: We talked a little bit about of it yesterday, but
11:26
Speaker 2: you know a few more days to digest the story
11:28
Speaker 2: and the looming story on H one B visas and
11:31
Speaker 2: where those may be going. A couple pieces covered their
11:34
Speaker 2: next In addition to trivia on the Financial Exchange.
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12:19
Speaker 5: SAM trivia here in the Financial Exchange And On August
12:24
Speaker 5: twenty third, nineteen ninety eight, the Seventies Show debuted on Fox.
12:28
Speaker 5: The series focused on the lives of a group of
12:31
Speaker 5: teen eight Is this supposed to be September twenty third, Benjamin, September?
12:36
Speaker 1: Isn't it? Well?
12:37
Speaker 5: Anyways, it's It's a series that focuses on the lives
12:42
Speaker 5: of a group of sixteenage friends living in the fictional
12:46
Speaker 5: town of Point Place. So our trivia question today is simply,
12:51
Speaker 5: what state was that seventies show based in? Once again,
12:55
Speaker 5: what state was that seventies show based in?
12:58
Speaker 3: Never watched?
12:59
Speaker 5: It couldn't tell?
12:59
Speaker 3: You be the.
13:00
Speaker 5: Seventh person today to text us at six one seven
13:03
Speaker 5: three six two thirteen eighty five with the correct answer,
13:06
Speaker 5: you know, win a Financial Exchange Show T shirt. Once again,
13:09
Speaker 5: the seventh correct response to text us to the number
13:12
Speaker 5: six one seven three six two thirteen eighty five will
13:16
Speaker 5: win that T shirt. See complete contest rules at Financial
13:19
Speaker 5: Exchange Show dot com.
13:21
Speaker 2: Was that the show with Fez I don't know yah,
13:24
Speaker 2: which was just an acronym for foreign exchange student.
13:26
Speaker 1: I don't know.
13:28
Speaker 5: I told you I didn't see it.
13:29
Speaker 3: Yeah, that's why the no ideah.
13:31
Speaker 4: I watched that show for years.
13:32
Speaker 3: Yeah. H one B visus.
13:34
Speaker 2: So Friday and over the weekend we had a number
13:39
Speaker 2: of announcements from the White House on H one B visas.
13:41
Speaker 2: If you're unfamiliar, about sixty five thousand of these are
13:45
Speaker 2: issued every year for foreign workers that companies in the
13:48
Speaker 2: United States want to hire. The rules around it have
13:53
Speaker 2: changed several times. The last change occurred during the first
13:56
Speaker 2: Trump administration, but we didn't really see the effects of
13:59
Speaker 2: it until the Biden administration. But effectively, what it did
14:02
Speaker 2: during the Trump administration was removed the need to do
14:06
Speaker 2: a full application for an H one B visa in
14:08
Speaker 2: order to enter the lottery. And it was a and
14:10
Speaker 2: still is a lottery system that determines who gets these.
14:14
Speaker 2: Since that point in time, you saw the applications for
14:18
Speaker 2: H one B visas increase something like three or four fold.
14:22
Speaker 2: I think in the most recent data I saw there
14:23
Speaker 2: were seven hundred and fifty thousand applications for sixty five
14:27
Speaker 2: thousand visas to be issued, because all you'd need to
14:30
Speaker 2: do is basically pay a ten dollars registration fee to
14:32
Speaker 2: get into one of these visa applications. As we covered,
14:37
Speaker 2: I think three quarters of these are issued to Indian citizens.
14:42
Speaker 2: And we actually today got to look at which companies
14:45
Speaker 2: are using the most H one B visa beneficiaries. So
14:49
Speaker 2: in twenty twenty five, Amazon took the top spot, followed
14:52
Speaker 2: by Tata Consultancy, Microsoft, Meta, Apple, Google. Unsurprising answers here, right,
14:58
Speaker 2: the biggest companies out there who can most easily navigate
15:01
Speaker 2: these complex rules are the ones that got issued the visas.
15:06
Speaker 2: Alison Schraeger from Bloomberg This Morning wrote a piece H
15:10
Speaker 2: one B visas are Crucial to American productivity and lays
15:13
Speaker 2: out her argument night I'll be honest, I thought I
15:16
Speaker 2: was going to disagree with the conclusions that she draws here,
15:22
Speaker 2: because you know, quite honestly, I think there probably is
15:25
Speaker 2: a fair bit of abuse in this program. I think
15:27
Speaker 2: there's from everything I've seen, a lot of H one
15:31
Speaker 2: B visa use that is specifically designed to cut overall headcount,
15:36
Speaker 2: cost and bring in talented resources that you wouldn't be
15:40
Speaker 2: able to do in the United States without H one
15:42
Speaker 2: B visa and undercutting American workers and their salaries because
15:47
Speaker 2: of that. And so that's been my take on this
15:49
Speaker 2: program is it's so cheap to apply for that it's
15:52
Speaker 2: basically a lottery ticket for your company, and if you
15:55
Speaker 2: can put in thousands of applications, you're likely to get
15:57
Speaker 2: a few hits on them and be able to.
16:00
Speaker 3: Hire somebody at much below market rate.
16:01
Speaker 2: And I think there's plenty of evidence for that, But
16:05
Speaker 2: I think that does ignore the fact that we still
16:08
Speaker 2: aren't great at training stem in the United States, and
16:14
Speaker 2: this type of program where we bring foreign workers into
16:18
Speaker 2: the United States based on their merit is still important.
16:21
Speaker 2: And that's really the case that she's making. It's not
16:24
Speaker 2: so much that she's saying, hey, one hundred thousand dollars
16:27
Speaker 2: fee or a ten dollars fee is the right or
16:29
Speaker 2: wrong answer. But her argument is, look, we should focus
16:33
Speaker 2: on an overall reform of the US immigration system.
16:36
Speaker 3: Which good luck.
16:37
Speaker 2: But where I agree with her is, look, start prioritizing
16:42
Speaker 2: skilled labor migrants and bring them in here and give
16:45
Speaker 2: them a path the citizenship as opposed to the current process,
16:49
Speaker 2: which is mostly family reunification and means that a lot
16:54
Speaker 2: of the people coming in don't have skills that our
16:56
Speaker 2: economy needs, or might not even have an intention to
16:58
Speaker 2: work in the United States. And so again I came
17:02
Speaker 2: into this thinking, Yeah, Allison's kind of missing the boat
17:05
Speaker 2: on this, and I don't think she's going to come
17:07
Speaker 2: up with a good.
17:08
Speaker 3: Argument for it.
17:09
Speaker 2: She actually does, and her argument is, look, we still
17:12
Speaker 2: need to be able to find these workers, and whether
17:16
Speaker 2: the fee is ten dollars, twenty thousand dollars or one
17:19
Speaker 2: hundred thousand dollars, that still might happen, but we probably
17:22
Speaker 2: need a better process for it.
17:23
Speaker 4: Yeah, that's the textbook economist argument. If somebody with skills,
17:29
Speaker 4: whether they be high or low, if they meet a
17:31
Speaker 4: need and they don't require any training, they come to
17:35
Speaker 4: us fully equippedor nearly so, with a lot of so
17:37
Speaker 4: called human capital, make it as easy as possible for
17:40
Speaker 4: them to come here.
17:42
Speaker 2: For those of you, by the way, that think that
17:43
Speaker 2: I'm full of crap and that this is a you
17:46
Speaker 2: know that we shouldn't have any h one B visas
17:49
Speaker 2: at all, right, because I've heard that argument like this
17:51
Speaker 2: is a useless program. We shouldn't allow this to happen. Generally,
17:54
Speaker 2: except for very specific situations like if we need doctors
17:58
Speaker 2: in rural Tennessee, then go for it.
18:00
Speaker 3: But other than that, no, I don't want to see it.
18:02
Speaker 2: I ask you this, Okay, if you are Amazon now
18:06
Speaker 2: and you don't get your visa or you don't want
18:08
Speaker 2: to pay one hundred thousand dollars for that visa, how
18:11
Speaker 2: difficult is it for me to set up a base
18:14
Speaker 2: in Bangalore, India and just hire as many Indian engineers
18:18
Speaker 2: as I want to design my internet, to design my product,
18:22
Speaker 2: to do the work that they were otherwise hired to
18:25
Speaker 2: do in the United States, and pay payroll taxes on
18:28
Speaker 2: If I don't have an H ONEB visa, why wouldn't
18:31
Speaker 2: I go do that? I can't come up with a
18:33
Speaker 2: compelling reason. Yeah, if you need to manufacture a car, yeah,
18:37
Speaker 2: there's tariff reasons. There's a whole bunch of reasons that
18:39
Speaker 2: you need that person. But that's not who's getting these
18:41
Speaker 2: H ONEB visas. It's Amazon, it's Google, it's Meta, it's
18:44
Speaker 2: these high tech companies that need to design internet infrastructure
18:49
Speaker 2: and all sorts of website design, and they are finding
18:52
Speaker 2: that in a lot of cases it makes sense to
18:54
Speaker 2: hire foreign workers to do so, and my concern would be, Okay,
18:58
Speaker 2: if I have to pay one hundred thousand dollars to
18:59
Speaker 2: do that, forget about it. I won't bring that person
19:02
Speaker 2: to the United States. I will just go hire that
19:03
Speaker 2: person in India in the first place. So it's a
19:08
Speaker 2: complex issue, Like genuinely, it's a really complicated situation, and
19:12
Speaker 2: I have no idea what the overall effect is going
19:15
Speaker 2: to be on one hundred thousand dollars new application price.
19:18
Speaker 2: I think I like the idea, but there could be
19:20
Speaker 2: some serious problems with it for employment in the United States.
19:24
Speaker 3: Quick Break. Wall Street Watch coming up.
19:25
Speaker 1: Next, bringing the latest financial news straight to your radio
19:42
Speaker 1: every day. It's the Financial Exchange on the Financial Exchange
19:46
Speaker 1: Radio Network. Time now for Wall Street Watch. A complete
19:52
Speaker 1: look at what's moving market so far today right here
19:56
Speaker 1: on the Financial Exchange Radio Network.
20:00
Speaker 5: It's our mixed territory and a little changed after all
20:03
Speaker 5: three major averages recorded at all time highs yesterday. Coming
20:07
Speaker 5: up this afternoon, Wall Street will monitor Jerome Powell's speaking
20:10
Speaker 5: engagement in Rhode Island. I think that's around twelve thirty
20:14
Speaker 5: Eastern time.
20:16
Speaker 3: Right now, the.
20:17
Speaker 5: Dow is up by three tenths of one percent, or
20:20
Speaker 5: one hundred and twenty nine points. SMP five hundred is
20:23
Speaker 5: down a tenth of a percent or seven points lower.
20:26
Speaker 5: NASDAK down nearly three tenths of one percent, or sixty
20:29
Speaker 5: four points lower. Russell two thousand is up nine tenths
20:32
Speaker 5: of one percent. Ten year Treasure reeled flat at four
20:35
Speaker 5: point one four to seven percent, and crude oil up
20:39
Speaker 5: two and a half percent higher, trading at sixty three
20:41
Speaker 5: dollars in eighty three cents a barrel. Following the big
20:46
Speaker 5: news from Nvidia yesterday, with the announcement that the AI
20:49
Speaker 5: and chip giant said it would invest up to one
20:52
Speaker 5: hundred billion dollars into open AI or open AI will
20:56
Speaker 5: build in deploy systems using in Vidia's graphics process units
21:01
Speaker 5: and video. Stock jump nearly four percent yesterday on that news,
21:05
Speaker 5: but is giving back nearly two percent today. Meanwhile, Firefly
21:09
Speaker 5: Aerospace shares are sinking twelve percent after the space and
21:13
Speaker 5: defense technology company posted a wider quarterly loss in lower
21:17
Speaker 5: than expected revenue in its first earnings report since its
21:21
Speaker 5: stock market debut. Elsewhere, after its seven percent decline yesterday,
21:25
Speaker 5: ken View shares a rebounding over three percent today. The
21:29
Speaker 5: Tailenol parent company's bracing four lawsuits after the Trump administration
21:33
Speaker 5: said prenatal exposure to Tailanol's active ingredient might cause autism.
21:38
Speaker 5: AutoZone falling over two percent after the auto parts retailers
21:42
Speaker 5: saw its gross profits and earnings per share fall below
21:45
Speaker 5: street expectations for its most recent quarter despite an increase
21:49
Speaker 5: in same store sales, and after today's closing bell, we'll
21:52
Speaker 5: see earnings from Micron Technology. That stock is up by
21:56
Speaker 5: two percent at the moment. I'm Tucker Silvan that does
22:00
Speaker 5: Wall Street Watch. In the previous segment, we asked you
22:04
Speaker 5: the trivia question, what state was that seventy shows based in?
22:09
Speaker 5: That would be Wisconsin. Peter from our Charge, Yeah, you
22:11
Speaker 5: got it. My congrats. Peter from Charlton, Mass is our
22:14
Speaker 5: winner today taking home a Financial Exchange Show teacher. Congrats
22:17
Speaker 5: to Peter. We play trivia every day here in the
22:20
Speaker 5: Financial Exchange See complete contest rules at Financial Exchange Show
22:24
Speaker 5: dot com.
22:25
Speaker 3: Listen, Tucker, I don't know.
22:26
Speaker 2: Yeah, I get the answer correct to maybe one in
22:30
Speaker 2: thirty of our trivia questions. And so when I do,
22:34
Speaker 2: I have a little excitement for myself. I get excited
22:37
Speaker 2: about prodia so yeah, thank you. Our first stock Our
22:42
Speaker 2: first story of the show today was a piece from
22:45
Speaker 2: Barons by Martin I'm gonna go BACKERDS. Is the stock
22:51
Speaker 2: market over valued? We're about to find out. Our next
22:54
Speaker 2: story of the show is also from Barons, from Teresa Rivas,
22:58
Speaker 2: saying stocks are expensive.
23:00
Speaker 3: Growth means that may not matter.
23:02
Speaker 2: So let's argue the opposite side of this piece here, Mark,
23:06
Speaker 2: which is we just got done talking about it.
23:09
Speaker 4: That's like saying I'm fat, but I might have a
23:11
Speaker 4: growth spirit. Well, yeah, sure, earnings. Growth might Earnings is
23:15
Speaker 4: the denominator in the so called PDE that we talked
23:17
Speaker 4: about in the last hour. We talked about how to
23:20
Speaker 4: answer the question or stock's expensive? What objective quantifiable measure?
23:25
Speaker 4: That's a little redundant, but anyway would you use and
23:27
Speaker 4: we said we'll use P to E. The trick is
23:30
Speaker 4: what you put in the E of that ratio? You
23:33
Speaker 4: use the last twelve months? Do you use a longer
23:35
Speaker 4: term series?
23:36
Speaker 3: Go ahead? Nope, keep going.
23:38
Speaker 4: Okay, So we concluded in this you can confirm it's
23:42
Speaker 4: readily available that by any measure, stocks are really expensive,
23:47
Speaker 4: epically expensive, historically expensive. Is that a disaster that foretold
23:53
Speaker 4: bad things. In ninety eight ninety nine, a lot of
23:55
Speaker 4: people rang the one not for a few years, right,
23:58
Speaker 4: It took time. Yeah, so there needed to be some catalyst.
24:01
Speaker 4: What will that be? Hard to say. Will the economy
24:04
Speaker 4: turn people become less willing to take risk and that
24:08
Speaker 4: causes these multiple p relative to E. Whatever you decide
24:11
Speaker 4: to put an E, Will that cause that multiple to compress?
24:14
Speaker 4: Probably that's the way it's going to get resolved. It
24:16
Speaker 4: could also resolve in a more orderly and happy way
24:19
Speaker 4: if the E just grows when you have a fraction,
24:22
Speaker 4: If the thing on the bottom of your fraction grows,
24:25
Speaker 4: the fraction, the ratio excuse me, goes down. That is
24:29
Speaker 4: one way that this could get resolved. It is worth
24:31
Speaker 4: noting that has never happened, so that's a bit optimistic. Again,
24:36
Speaker 4: that's like your doctor's saying one hundred pounds overweight, but
24:39
Speaker 4: you might hit a growth spurt. Not likely to happen
24:42
Speaker 4: to an adult person anyway.
24:44
Speaker 2: Give me the I want to talk through the last
24:47
Speaker 2: argument that I oftentimes hear people bring up, which is
24:50
Speaker 2: when we're talking about price to earnings ratios. Yeah, you
24:53
Speaker 2: can compare company to company or market to market, but
24:55
Speaker 2: most of the time. What I hear it talked about
24:57
Speaker 2: is is it normal.
24:59
Speaker 3: Compared to it self?
25:01
Speaker 4: And so that's probably the only right way to think
25:02
Speaker 4: about it.
25:03
Speaker 2: And so let's make let's let's cover that argument that Mark,
25:07
Speaker 2: you're making a comparison of this market to nineteen ninety
25:10
Speaker 2: seven and the two have nothing in common with each other,
25:13
Speaker 2: and maybe we should just now I know that you're not,
25:16
Speaker 2: but yeah, for the sake of and I am, and
25:19
Speaker 2: I am for the sake of argument here, let's let's
25:21
Speaker 2: run through the piece of well, these things aren't comparable,
25:26
Speaker 2: and the fundamentals of our economy and how people invest
25:29
Speaker 2: in four oh one k's and everything else are so
25:31
Speaker 2: different now that any of the history around totallys are irrelevant.
25:35
Speaker 4: Pees I'm going to use the Shiller so called Chiller
25:38
Speaker 4: pe named after a guy called Robert Schiller, one that
25:40
Speaker 4: about prize and economics come came up with many interesting
25:43
Speaker 4: things over the course of his career, still teaches. One
25:46
Speaker 4: of them was to in the ratio of PDE, don't
25:49
Speaker 4: just use the last twelve months of the used the
25:51
Speaker 4: last ten years, adjusted for inflation, and take an average
25:54
Speaker 4: that smooths out business cycle effects. Always a good practice.
25:58
Speaker 4: So by the that Schiller PE also called cyclically adjusted PE,
26:03
Speaker 4: which just describes what Schiller did adjusted for the business cycle,
26:07
Speaker 4: that is also at all time near all time record highs.
26:11
Speaker 4: It has been trending up more or less since the
26:14
Speaker 4: early nineteen nineties. It's been the mean. The average of
26:19
Speaker 4: that series has doubled since that period. So something did change.
26:23
Speaker 4: People became more willing to take on risk for lots
26:26
Speaker 4: of different reasons. Internet trading, pervasiveness of the four oh
26:31
Speaker 4: one K where all stock investors now right, lots of
26:35
Speaker 4: other potential suspects in why people are willing to pay
26:39
Speaker 4: more for a dollar's worth of earnings today than they
26:42
Speaker 4: were fifty years ago. So yes, schill it PE or
26:45
Speaker 4: whatever your favorite measure has trended up. Will it continue
26:48
Speaker 4: to trend up? Will there be another big leg up
26:51
Speaker 4: by possibly? I can't say it won't. I can't say
26:54
Speaker 4: there won't be. There aren't the obvious catalysts though that
26:58
Speaker 4: there were in the mid nineteen nineties, when in trading,
27:00
Speaker 4: for example, was new, when the four to oh one
27:02
Speaker 4: K was only fifteen or so years old. All of
27:06
Speaker 4: those tailwinds, those tailwinds have abated so that seems again optimistic, Mike,
27:12
Speaker 4: though obviously we can't roll it out.
27:14
Speaker 2: If you're listening to this program right now, I assume
27:16
Speaker 2: you're generally interested in these types of topics about the
27:18
Speaker 2: market and the economy and the seeming turning point that
27:21
Speaker 2: we are reaching. If you would like to learn a
27:25
Speaker 2: bit more, I would love for you to come join
27:27
Speaker 2: us at one of our two events next month. I've
27:29
Speaker 2: talked a little bit about these before, but just as
27:31
Speaker 2: a reminder, we're going to be doing lunch followed by
27:34
Speaker 2: meet and Greed and meeting with the folks at Armstrong
27:37
Speaker 2: Advisory Group, and you can hear us talk about our
27:40
Speaker 2: perspectives on where this market is and is going. Whether
27:43
Speaker 2: you're do it yourself or whether you have an investment
27:47
Speaker 2: advisor today, or you're just trying to learn a little
27:49
Speaker 2: bit more about where the economy might be going nationally, internationally,
27:53
Speaker 2: and even locally. Please join us for one of these
27:56
Speaker 2: two events, the two dates October ninth and October sixth, sixteenth.
28:00
Speaker 2: The first one on the ninth is going to be
28:02
Speaker 2: at the Margariteville Resort on Cape Cod October ninth, we're
28:05
Speaker 2: doing a live broadcast of this show at both of
28:08
Speaker 2: these events, followed by that lunch and meet and greet.
28:12
Speaker 2: Following that Chestnut Hill the Showcase super Lucks on October sixteenth,
28:16
Speaker 2: so once again October nine, October sixteen. You can get
28:19
Speaker 2: a whole bunch more information by going to Armstrong Advisory
28:22
Speaker 2: dot com. But you can call us to at eight
28:24
Speaker 2: hundred three nine three four zero zero one. I've mentioned
28:28
Speaker 2: this a few times. Space is limited. We are doing
28:32
Speaker 2: these at a few different locations. We would love for
28:35
Speaker 2: you to join, but you do need to register ahead
28:37
Speaker 2: of time. Armstrong Advisory dot com or eight hundred three
28:42
Speaker 2: nine three four zero zero one.
28:44
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
28:47
Speaker 1: registered investment advisor. Nothing in the ad or in any
28:49
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
28:53
Speaker 1: your own financial, tax, intestate planning advisors before making any
28:55
Speaker 1: investment decisions. Armstrong may contact you to offer investment advisory services.
29:00
Speaker 2: Mark forget about the Golden age of value investing? Is
29:02
Speaker 2: value investing generally dead?
29:05
Speaker 3: Is it over?
29:07
Speaker 4: I hope not, because that's what most active managers profess
29:10
Speaker 4: that they are. They So let's be let's talk.
29:13
Speaker 3: Let me let me define find value investing for.
29:15
Speaker 4: You buy stocks more cheaply than the prevailing rate for
29:18
Speaker 4: say the index of which they're apart.
29:19
Speaker 2: So a stock that based on the discount to what
29:23
Speaker 2: you think it is value.
29:24
Speaker 4: Yeah, but if you own like a value index fundation
29:26
Speaker 4: four oh one K, it's usually put together using rules,
29:29
Speaker 4: and the rule is pretty straightforward. In the case of
29:31
Speaker 4: say the S and P or the Russell family of indices,
29:35
Speaker 4: they just include stocks that traded a lower We talked
29:38
Speaker 4: about the price to earnings in the last segment they trade.
29:41
Speaker 4: I'll just use that as an example, though you could
29:42
Speaker 4: also use price to book value of a company, price
29:45
Speaker 4: to sales. They traded a lower price to I think
29:49
Speaker 4: it's sales. Is the way that S and P. Well, anyway,
29:52
Speaker 4: they traded lower valuations. That makes them cheaper. I know
29:58
Speaker 4: that sounds circular, but that's how we fine whether or
30:00
Speaker 4: not something is expensive. We look at his relative valuation.
30:04
Speaker 4: So might know that's most investors want to buy a
30:06
Speaker 4: dollar's worth of earnings for fifty cents. That's what you
30:09
Speaker 4: buy when you buy into a value oriented strategy. You
30:14
Speaker 4: want to buy something that's likely to that other investors
30:17
Speaker 4: or the market, I should say, investors on average that is,
30:20
Speaker 4: aren't appreciating, aren't seeing. Yeah, I'm oversimplifying a bit, but
30:24
Speaker 4: that's that's the nut shock.
30:25
Speaker 2: The author's making the argument here that the dissemination of
30:30
Speaker 2: information is now so easy and perfect right between artificial intelligence,
30:35
Speaker 2: the internet, and everything else. He makes the case that look,
30:38
Speaker 2: forty years ago, my job was flying around the world
30:41
Speaker 2: and trying to get that competitive edge to find where
30:43
Speaker 2: that value is and determine it and find it, and
30:47
Speaker 2: data and information is so perfectly disseminated now that he
30:50
Speaker 2: doesn't feel that he has the same competitive advantage.
30:53
Speaker 3: I'm not sure I would. I'm not just sure that
30:56
Speaker 3: I agree with that perspective.
30:58
Speaker 2: Yes, information is much quicker to get out there, but
31:04
Speaker 2: I think it has also led a whole bunch of
31:06
Speaker 2: people to say, I have no idea what to do
31:09
Speaker 2: with this information overload. I can't build a model based
31:11
Speaker 2: on it, and so I'm throwing my hands in the
31:13
Speaker 2: air and giving me away.
31:14
Speaker 4: He's right in a sense, if you think about what
31:16
Speaker 4: most people, this isn't what most people do. So this
31:21
Speaker 4: I'll try to say it in a way that is
31:25
Speaker 4: accessible even if you haven't studied asset managers, which we
31:29
Speaker 4: do in our day job at Armstrong Advisory Group, we
31:31
Speaker 4: cover that's my job anyway, covering managers, finding those that
31:35
Speaker 4: might have an edge that will allow clients for whom
31:39
Speaker 4: these funds are suitable. That's a big caveat sure to
31:42
Speaker 4: outperform the market, because that's the name of the game.
31:45
Speaker 4: If I wanted to just keep pace with the S
31:47
Speaker 4: and B five hundred, I'd buy an index fund and
31:49
Speaker 4: call it a day. You want to try most investors,
31:51
Speaker 4: not all want to try to outperform the index. You'll
31:54
Speaker 4: need to hire a manager. What type of manager should
31:56
Speaker 4: I hire? I want to hire one that scours the
31:58
Speaker 4: universe of companies and find that somebody else is missing
32:02
Speaker 4: the big story. With respect to in the old days,
32:06
Speaker 4: you had to go through financial statements. Computers helped, but
32:09
Speaker 4: you still had to go through them looking for things
32:12
Speaker 4: that in the past have helped you identify underappreciated potential gainers,
32:18
Speaker 4: so to speak. AI to a degree you could program that.
32:21
Speaker 4: Now you could put your secret sauce into a formula
32:25
Speaker 4: and it can at least eliminate the need for a
32:27
Speaker 4: lot of analysts doing the legwork for you. We do
32:29
Speaker 4: that a little bit internally too. We're just starting to
32:32
Speaker 4: explore that, not using it, but starting to appreciate how
32:35
Speaker 4: it might be used. What this manager means is if
32:39
Speaker 4: my secret sauce can be reduced to a formula, somebody's
32:42
Speaker 4: going to figure it out and I have no edge.
32:44
Speaker 2: Yeah, it's an interesting argument for where AI is going.
32:48
Speaker 2: Quick break when we come back, but a stack Roulette
32:51
Speaker 2: is next.
32:52
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34:05
Speaker 2: Financial Times is that with a piece on the casino
34:09
Speaker 2: industry and making the case that as Americans kind of
34:14
Speaker 2: run through their rest of their savings, as prices continue
34:18
Speaker 2: up in other areas, and as Americans have more and
34:22
Speaker 2: more access to legal sports, gambling and local casinos, that
34:25
Speaker 2: they are skipping the Vegas trip, which that could be possible.
34:29
Speaker 2: I just want to point out one thing though, which
34:32
Speaker 2: seems seemingly contradicts that argument. As I mentioned last week,
34:37
Speaker 2: we got the state by state level unemployment data for
34:39
Speaker 2: the month of August, and the Nevada overall unemployment rate
34:45
Speaker 2: for the last twelve months has come way down. We
34:47
Speaker 2: were sitting at five point seven percent a year ago
34:50
Speaker 2: and we're now sitting at five point three. It came
34:53
Speaker 2: down from five point four the previous month and has
34:56
Speaker 2: just been slowly heading downwards since February or March of
35:00
Speaker 2: this year to rates that you know, five point three
35:03
Speaker 2: percent isn't ultra low, but for Nevada, it actually kind
35:07
Speaker 2: of is. You haven't gotten below five point one percent
35:10
Speaker 2: anytime since post COVID, and the last time you were
35:13
Speaker 2: below five percent was in the late twenty tens. And
35:16
Speaker 2: so look, Nevada's an entire employment industry is not defined
35:20
Speaker 2: by the casinos.
35:21
Speaker 3: Especially these days. They've they've continued to diversify it fair bit.
35:25
Speaker 2: But I just find it strange that if we're truly
35:27
Speaker 2: seeing a real pushback against visits to Vegas, I would
35:31
Speaker 2: expect the unemployment rate in the state to be going
35:34
Speaker 2: the other direction, and it's it's simply not. But every
35:38
Speaker 2: other piece I find compelling. Right, Like we've covered at length,
35:41
Speaker 2: how you easily you can sports gamble compared to ten
35:45
Speaker 2: years ago, I can get to a casino here in
35:48
Speaker 2: Massachusetts within half an hour, I don't I guess.
35:51
Speaker 3: Previously through a quarter.
35:52
Speaker 4: Now it lands in a slot.
35:53
Speaker 3: Yeah, I mean you gotta.
35:55
Speaker 2: I used to have to drive down to Mohegan if
35:56
Speaker 2: I wanted to be a place at bed Now now
35:58
Speaker 2: I can go do it wherever I want.
36:01
Speaker 1: Why is that funny.
36:02
Speaker 4: It's for a lot of people, it's a problem.
36:08
Speaker 2: Well it's especially funny for me specifically, because so last year, Tucker,
36:11
Speaker 2: you remember, we did the live broadcast from MGMGM out
36:15
Speaker 2: out in Springfield, and so I went there the night
36:18
Speaker 2: before because I didn't want to make the drive during
36:20
Speaker 2: the commuter time and in the morning, and and like
36:23
Speaker 2: Mark mentioned on.
36:24
Speaker 3: Like gambling, you don't explain myself.
36:26
Speaker 2: I'm not your wife despise gambling, honey. I walked around
36:33
Speaker 2: with three hundred dollars in my pocket, and I walked
36:36
Speaker 2: around that casino floor like three times, and out of
36:41
Speaker 2: just angst, also a lack of knowledge of how to gamble.
36:46
Speaker 2: I genuinely don't even know how you change the dollars
36:48
Speaker 2: for poker chips for chips at this stage, I just
36:51
Speaker 2: walked around dollars in my pocket and then went.
36:54
Speaker 3: Back up to my wife's listening.
36:55
Speaker 2: So genuinely that that's that's my gambling experiences. I walk
37:00
Speaker 2: around the floor and don't know how to gamble. What
37:02
Speaker 2: do you have for us for stack roulette?
37:03
Speaker 4: Mark, crypto hoarders turned to share buy You're gonna like this,
37:06
Speaker 4: Mike turn to share buybacks and push to boost falling
37:09
Speaker 4: stock prices. The Financial Times, I think correctly calls this
37:12
Speaker 4: the death the death knell for some crypto business model.
37:16
Speaker 4: So it's all companies that used to do something else.
37:19
Speaker 4: They make golf carts, they make catheters, they do something,
37:22
Speaker 4: they make something concrete. They decided that their share price
37:26
Speaker 4: would be higher if they if they re if they
37:29
Speaker 4: transform themselves into a crypto reserve. Effectively, we buy bitcoin
37:33
Speaker 4: you by us. I don't get that. Why wouldn't people
37:36
Speaker 4: just buy a bitcoin etf or good question? Right, it's
37:39
Speaker 4: a business model, or has been for the past several years. Well,
37:42
Speaker 4: that has petered out. The momentum from that sort of
37:46
Speaker 4: repositioning has petered out, so they've now resorted to selling
37:48
Speaker 4: bitcoin to buy their stock prices to boost that. This
37:53
Speaker 4: has to be a sign of the end of the
37:55
Speaker 4: craziest phase in crypto, right, Mike.
37:58
Speaker 3: I've never what you're willing to call a peek mark,
38:01
Speaker 3: but that does seem that's what we like about you, Mike.
38:05
Speaker 2: Concerning quick break for the next twenty two hours, we
38:10
Speaker 2: will be back at it tomorrow here on the Financial Exchange.
38:12
Speaker 2: Have a great rest of your day, folks,